Yovich & Co. Market Update - 29 October 2020

Oct 29, 2020 | Commentary

New Zealand Equities

Market update 2020-10-27

In summary, last week the NZ50G saw 21 companies on the downside, 3 remained unchanged and 27 on the upside.   The Consumer price index (CPI), released by Stats NZ for the quarter ending September, has undershot the Reserve Bank of NZ (RBNZ) expectation of 1.1% at 0.7% with the annual rise at 1.4%. Fruit and vegetables were the highest contributors, up 11.6% (0.28 points) partly offset by grocery food, and telecommunication equipment which fell by 1.4% (0.10 points) and 14.8% (0.08 points) respectively. Economists are stating these latest results will support the RBNZ to lower the OCR in March 2021. U.S. stocks are seeing red this week as lawmakers in Washington continue to haggle over a spending bill. House Speaker Nancy Pelosi said she’s “hopeful” about reaching a deal with the White House. Data showed a drop in jobless claims, suggesting the labour market is still gradually recovering. This was overshadowed by a new resurgence of COVID-19 cases. All this uncertainly is causing an emotional yoyo reaction to U.S. share prices. Along with that there are only six days to go to the US election. Trump is seen as the market friendly candidate. While Biden’s higher tax regulations could see short term share price pain (buying opportunities).

Biggest movers 2020-10-27

Investment News

NZX

Has announced its Q3 operating revenue metrics ending 30 September 2020. The metrics represent the key operations of NZX’s business, total equity market at $168,830m, an increase of 5.9% and the NZX debt market up 13.3% at $39,259m. Funds under management for SuperLife KiwiSaver is up 10.5% at $1,085m. Total equity transactions is up 121.1% at 3,076,357 for a total trade value of $12,242m up 34.5%. The interesting fact is that while transactions are increasing, trade value ($) has decreased, a common trend as a greater number of retail investors are becoming more involved in the capital markets. Total Revenue growth was flat at 0.3% boosted by the secondary market revenue increasing 15.6%.
Current Share Price: $1.72, EPS: $0.626, PE ratio: 27.48, Gross dividend yield: 4.93%.

Infratil

Has executed a conditional offer to acquire up to 60% of Qscan Group Holdings Pty Ltd (“Qscan”), a comprehensive diagnostic imaging practice throughout Australia, from Quadrant Private Equity (“QPE”) and existing doctor and management shareholders, for total cash equity consideration of up to A$330 million. The acquisition process involves two steps: The offer is conditional on doctor and management shareholders holding the equivalent of ~25% to 32.5% of the business post-close as a result of electing to reinvest some of their proceeds into the new holding vehicle. If previous condition is satisfied, then QPE and the other existing shareholders are required to accept the offer. Completion of the acquisition is also conditional on obtaining Foreign Investment Review Board of Australia approval and, subject to obtaining that approval, would be expected to settle in December 2020 or early 2021. Current Share Price: $5.49, Gross dividend yield: 3.87%, Target price: $5.36, Rating: Outperform.

Metlifecare

Will cease to be quoted on the NZX Main Board (NZSX) from close of business on Tuesday, 3 November 2020. The final day of trading was Friday, 23 October 2020. The MET010 bond will continue to be listed on the NZX Debt Market.  Current Share Price: $5.99, Takeover Offer: $6.00.

Sky Television 

Has agreed terms with Spark New Zealand Limited (SPK) to enable Spark to offer Sky Sport Now in a bundle with Spark Sport from 16 November 2020. The initial agreement is for up to six months. Terms of the agreement are commercial and confidential. Details of the offer, including pricing and other terms, will be announced by Spark. Current Share Price: $0.14. 

Westpac Banking Group

Announced that their 2H20 cash earnings will be impacted by A$1.22bn (after tax) arising from notable items, statutory profit will also be reduced by these items. The notable items include new items of $816m (after tax), combined with the previously announced additional $404m provision (after tax) for AUSTRAC matters. Analysts are predicting that Westpac will still be paying a dividend. The predictions range from 20 to 35 cents per share. Current Share Price: $19.09, Target price: $20.60, Rating: Outperform.

EROAD

The transport technology services company released its quarterly update for the three months ended 30 September 2020. Key points include: Listing on the ASX exchange and carrying out a NZ$53m capital raise to accelerate its growth strategies; successfully launched its EROAD Day Logbook in New Zealand and EROAD Go mobile workflow application in North America. EROAD expects to report H1 FY21 financial results at the upper end of its guidance range, which is $43.5m - $44.5m (revenue) and $12m - $14.2m (EBITDA). Units increased by 3,379 for the three months ended 30 September 2020, ending the quarter at 122,193. This is slightly higher than the guidance provided at the time of EROAD’s capital raise. Share Price: $4.03, Target price: $4.30, Rating: Neutral.

 
Freightways

Released its Q1 FY21 results. First quarter activity has been strong, with revenue increasing by 35% to $211.7m (compared to the same period last year), and EBITA increasing by 49%, compared to last year, to $34.8m. NPAT was 43% higher than the first quarter of the last financial year, at $19.2m. Express Package and Business Mail (EP&BM) volumes have increased as a number of companies providing online offerings has increased as well as Freightways increasing market share. Overall revenue across the division (which includes Big Chill) was up 46% against the same period last year, at $168m. Margins have improved through more efficient operating practices and the return of a small margin on residential deliveries to the extent that EP&BM EBITA was 56% ahead of the same period last year, at $27.3m. The Information Management (IM) businesses in NZ and Australia is feeling effects of workforces working from home. The Medical waste operations in Australia have experienced significant growth although expected to reduce slightly as the situation in Victoria improves. Overall, revenue is 5% higher than the same quarter last year at $43.8m. New activity, be it in digitisation or medical waste, together with effective cost control, have led to an improvement in margins in Q1 FY21, with EBITA up 33% to $7.9m. Share price increased 3.15% (26 cents) to $8.51.
Share Price: $8.39, Target price: $7.83, Rating: Neutral.

 

 

 

 

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Nathanael McDonald



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